tv Your Money CNN January 13, 2013 12:00pm-1:00pm PST
apartment. he was only 26. as a teenage, schwartz was involved with developing website reddit and rss technology, technology that has impacted just about all of us. after dropping out of stanford. he focused on battling internet censorship. he had blogged about his battle with depression. and talk about serious pocket change. the treasury department said it won't be minting a $1 trillion coin to avert a federal government default. the coin would have been deposited into the federal, but it would never have been in circulation. the federal government has already reached the debt ceiling of nearly $16.4 trillion. and a dangerous find in new york's central park. conservancy workers were cleaning an 18th-century cannon when it was realized it was fully loaded and ready to fire full of gunpower and a cannon ball. a bomb squad was called in to remove the explosives. i'll be back in one hour and i'll show you the apps that can
help you track the deadly flu outbreak. where you live. and locate a doctor who can treat you if you get sick. but first, ali velshi explains why we still don't have a budget and how our elected officials have bungled a basic business process that most of us handle with ease, it's a must-see "your money" starts right now. america's road to economic recovery is wide open. it's right there in front of us. if our elected officials don't put some major road blocks in the way. i'm ali velshi, this is your money. debt ceilings, budgets and debt ceilings are all you're going to here coming out of washington the next few months and the partisan warfare in washington could put a dent in recovery. the threat is real. the next battle will be another clash over raising the u.s. debt ceiling. the current ceiling was officially hit on december 31st. but like last time. the u.s. treasury is using extraordinary measures to get through about late february or early march. if congress doesn't act by then,
the government risks not being able to pay some of its bills. republicans seem to think the debt ceiling is a useful tool to limit how much the government spends, but that is not what the debt ceiling law is supposed to do. it gives the u.s. treasury the flexibility to borrow money to pay the government's bills without going to congress to get approval every single time. it has nothing to do with spending control or debt control. let me be clear, you might think it's about spending control. you might like it to be about spending control. just like i'd like to be in "people "'s list of 50 most beautiful people. but wishful thinking isn't going to make it happen. politicians can use the debt ceiling as a hostage. just like they attempted to use the fiscal cliff in an attempt get something done. something they haven't been able to do using the normal democratic process, because the system is broken. it puts off dealing with the massive mandatory spending cuts until march 1.
republicans fully sbhe y intend the debt ceiling to extract concessions from democrats on spending. targeting things like social security and medicare. democrats will stand in their way, the u.s. will find itself at another dead-end just like 2011. threatened to shut down the government and possibly result in a credit rating downgrade again. but outside washington, the road to america's prosperity looks brighter. foreclosures are down, home sales and housing prices are up. the s&p 500, you may have something like this in your 401(k), it hit a five-year high this week. and a rebound in domestic energy production and manufacturing could lead to a true economic renaissance in america. according to the latest forecast, u.s. oil imports next year will fall to their lowest level in 25 years. that is in part because more supply is coming online right here in america. already the boom in natural gas extraction has brought prices down to historic lows and all that could mean more high-paying jobs in energy, in
manufacturing, in technology. add all of that up and this economy is poised to soar as long as washington doesn't bring it down. fareed zakaria is the host of cnn's fareed zakaria "gps." the real deal to avoid the fiscal cliff that may have ruined my new year's plans, you correctly stated was a small victory for sanity. the greater issue is what is missing from that deal and the mini cliffs that we're going to encounter. the debt ceiling cliff, the southwe sequestration cliff and the budget battle. does it stand in the way of what could be happening in the country? >> it stands in the way in two ways. if you're a company that does business with the defense department, if you're watching this sequestration madness. our the debt ceiling madness, are you going to be hiring new people? are you going to be expanding production? no, you're going to be wondering, is the defense
department budget cut by 20%, 10%? so there is that -- >> you will hesitate to make certain business decisions, particularly hiring decisions? >> exactly. republicans often talk about how uncertainty makes businesses not expand production. well this is the biggest uncertainty is the craziness over the debt ceiling. and the second biggest is on the sequestration. there's that piece of it. but there's the broader piece that you and i have talked about. which is we need to do more than just have a cyclical upturn. what you were describing very elegantly. exactly right, is that there's a cyclical rise, return of the american economy. housing is up, energy production is up. but there's a broader issue, which is how do we get the kind of growth we used to have in this country. three, 4% growth. in order to do that, we have to invest more in this economy. we're investing half as much as we used to. in infrastructure. we're investing half as much in science and technology. and we're investing much less than we used to in core areas of education. state universities for example are being decimated.
so if you don't invest for the future, where are you going to get the growth in the future? >> but in 2008 and 2009, invest became a bad word, invest became government spending. when you're talking about investing, you're talking about it in a fairly sophisticated manner. some in the government. some the private sector, each on their own and some jointly. that kind of discussion feels dead on arrival in this political environment where we can't get something like a basic budget done. >> the problem is we're going to have to do some of this, anyway. anyone who owns a home knows this. if you defer maintenance, if you say to yourself, my boiler is leaking but i'm not going to fix it, that's actually a penny wise, pound-foolish decision. it will eventually break and cost you three times as much. that's what's happening with our roads, bridges and highways. if you look at air travel. we have one of the world's most antiquated travel systems, we need to update the antiquated computer system. one day you're going to have terrible problems or you're
going to have a kind of the system will break down, it's not going to cost $25 billion. it will cost $50 billion. >> there's another thing we don't talk about enough. we're talking about spending as if there's this generally irresponsible spending around. some of that might be true. the bigger issue is nilements, the growth in what those are going to cost us over time. that's the real threat. it's the one that is hardest to deal with because it's stuff people want. >> we don't distinguish as you say between spending that is really on consumption. as i've gimg you a check, whether it's social security or unemployment insurance, whatever it is. interest deduction on your mortgage. that's stuff that is just, it gets spent. it's not investment for future growth. but when you build a bridge, when you update your airtraffic system, you're increasing economic activity. that's going to produce returns for the next 50, 100 years, the brooklyn bridge is still paying dividends. >> you've travelled to countries where business gets done. i think india is one example, business gets done despite the fact that government is largely seen as an impediment in many cases.
won't money just find its way around these impediments, if there's business to be done. won't it get done in spite of lack of vision. >> no, in places like india, the best thing they have going on for them is they're a very poor country. >> you're just getting basic increases in standard of living, india's per capita gdp is $1,500. our per capita gdp is about $50,000. >> very smart, you're trying to move up the value chain. you've got to have world class, and world-class skilled workforce. that's the piece we haven't talked about. investing in education. unless you have all that, yes, we could get economic activity if we were willing to work for you know, $1 an hour. we want to work at $50,000. we want to have real advanced highway jobs. for that, you need to get a lot of things right. >> thanks for being with us as always. fareed zakaria, the host of fareed zakaria gps, tune into
the show, he's got a special, a memo to the president, road map for the second term. sunday night, 8 :00 p.m. eastern. coming up -- >> i will not have another debate with this congress. over whether or not they should pay the bills, that they have already racked up through the laws that they passed. >> sadly, oh yes you will. the debt ceiling debate will get nasty. especially since many congressmen don't seem to understand the issue at all. ♪ hi dad. many years from now, when the subaru is theirs... hey. you missed a spot. ...i'll look back on this day and laugh. love. it's what makes a subaru, a subaru. aww man. [ male announcer ] returns are easy with free pickup from the u.s. postal service. we'll even drop off boxes if you need them.
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the debt ceiling is the next self-inflicted crisis that congress needs to deal with the debt limit is not like a credit card. it is simply not. it makes me crazy. when republicans and democrats alike, including the president, continue to use this misleading analogy. it's also not the same as your household budget with a few zeros taken out. for those who don't remember the last time congress pushed us past the debt ceiling, here's how it works. congress and the president spend money by creating bills and signing them into law. that is when the money is committed. last year, the u.s. government spent $3.8 trillion. two-thirds of that, the green came from revenue. the rest of it, the red, came from borrowing, the deficit. the sum total of all of these annual deficits, plus the interest is national debt. today the national debt extends at $16.4 trillion. the treasury is empowered to borrow money to make up for that shortfall. but only up to a certain amount. that's the debt ceiling.
keep it in mind, the treasury does not make decisions about how the money is spent. they're simply empowered in this case to borrow money and write the checks to pay the bills incurred by your democratically elected congress. today the debt ceiling is $16.3 trillion which is less than our debt. the treasury can use extraordinary measures to raise an extra $200 billion. those extra funds will only last until about mid february or early march according to the bipartisan policy center. good luck trying to explain this to conservative talk radio show host, rush limbaugh. >> i think it's a debt limit as your monthly credit card limit. you can't go over it on your credit card. and the united states government can't spend more than what its credit limit is or its debt limit. now ali velshi at cnn says that has no relation to spending. >> that's right, rush, the debt
ceiling was create sod the congress wouldn't constantly need to authorize congress to borrow to raise more money. it doesn't authorize any new spending it authorizes payment. it does not increase deficits. it allows the treasury to pay for the things that the u.s. government has already bought. if the congress doesn't raise the debt ceiling. treasury won't be able to pay the bills and the u.s. government will start defaulting on some of its obligations. here's what happens on february 15th of this year. the federal government will take in an estimated $9 billion in revenue. that's the good news. but compare that to the $52 billion in bills that will need to pay, everything from interest on the debt to pay for members of the military, the bipartisan policy center. estimates that roughly 40% of the bills for the month would go unpaid. now what's the consequence of not paying? the truth is, nobody really knows, since it's never happened before. you try telling american express that you're not paying your bill this month because you spent too much money going out to dinner last month. even talking about not raising
the debt ceiling in 2011 caused s&p to lower the u.s. credit rating because investing in u.s. debt is so safe. interest rates are low. 1.85% for 10-year bonds, missing an interest payment could cause those rates to rise. that's not enough to sway some members of congress. they say they need to hold the debt ceiling hostage to get real spending cuts. ron johnson is a republican senator from wisconsin, a member of the senate budge committee. as i said, the debt ceiling is not actually about future spending, it is for paying for bills that we already bought. whether or not you think we should spend less money in the united states, do you agree with my premise? >> no, i don't ali and hello, by the way. what the debt ceiling is all about, is providing the president the authority to borrow more money, put it on the backs of our children and grandchildren. there's no doubt that we are not going to default on our debt. but what the debt ceiling allows
or what the debt ceiling allows congress to do is to continue to deficit spend if we would stop incurring deficits, we wouldn't need to increase the debt ceiling. it's not about paying past bills, you bet into the cash flow aspect of this thing. basically what you're talking about is in order to increase the debt ceiling, we're giving the president the authority to put the burdened on our children and grandchildren. it's not about spending at all. it's about deficit spending. >> you said there's no doubt we are not going to default on our payments, the math indicates that if at some point -- why won't we? >> listen, our interest payments this year under $250 billion. we're going to bring in $ 2.5 trillion in tax revenue. ten times what the servicing on the debt is there is some cash flow aspects of turning over some debt. but basically the only reason you have to increase the debt ceiling is because we continue to deficit spend. we're actually spending $1 trillion more than we're bringing in. >> we're not, when you say --
>> that's the reason you have to increase the debt ceiling. >> when you say we continue to deficit spend. we've deny sit spent under this entire administration, under the entire previous administration as well. this isn't new, we never don't deficit spend. why would you pick this moment to have that fight? >> when do you stop doing that. >> can you come up with a budget? paul ryan couldn't come up with one. >> well paul ryan did pass a budget in the house. where we have passed a budget is in the united states senate controlled by democrats for over three years. >> right. >> so what we need, what we need to use the debt ceiling moment as, is a moment to educate the american public about all the deficit spending. the fact that we blew through a $2.1 billion increase in the debt ceiling in just seven months. we blew through it in 17 months. we have got to start bringing,
reducing spending reducing the -- >> the debt ceiling is a a technicality. you're talking about the budget, you're talking about federal spending. let me show you a piece of the "wall street journal" and get your comment. they said you can't take a hostage you aren't prepared to shoot. i don't want to ask you about hostages and shooting. i want to ask you a question in a different way. do you understand that the consequence or what the consequences are of the u.s. even technically defaulting on its financial obligations and are you willing to let that happen? you talked about interest rates. but the u.s. government has a lot more to pay than interest. >> ali, i don't want to play brinkmanship. when you start coming to the fact that we continue not to run deficits over $1 trillion per year. our interest rate is going to increase and interest expense can, you know if we just revert to our 30-year average interest costs from 1970 to 1999, that adds $600 billion in interest costs per year, that's what
we're trying to prevent. my suggestion is we increase the debt ceiling in incremental amounts until we get president obama to get serious about reducing spending. >> so you will increase it. >> you will vote increase it in an incremental amount? >> there's a good construct in terms of giving you know, $1 of increase in the debt ceiling for every dollar in deficit reduction. that's what we have to start using the debt ceiling to impose the spending discipline on this administration. and president obama saying that we don't have a spending problem. we have a spending problem in this nation. we have a deficit spending problem. that's where we have to start getting it under control. this debate is not going away. >> we've heard all of the, bumper stickers, let me bring you balk to my example of february 15th. we have $52 billion in committed spending. there isn't a chest of money sitting around for all the extra stuff. i've got a list, interest, which is the one you're talking, about the biggest parks $30 billion. we're talking in nine. we have 30 in interest. you've said there are other ways
to handle that. you've got tax refunds, 6.6 billion. federal salaries 3.5 billion. military pay, 2.7 billion. medicare, medicaid, 3.2 billion. defense vendors, which one are you cutting, sir? >> ali, you're taking a look at one day's -- >> i could pick any day. >> let's take a look at a year. in a year we'll get about 2.5 droin worth of tax revenue. last year we spent 3.5 trillion. if you actually utilized the social security trust fund to make the social security payments, that's another 775 million. now you're up to revenue of 3.2 trillion. you're basically funding all of government. we, i don't want to play brinksmanship. we should make sure that we can fund as much of government as revenues coming in. but we have got to start seriously taking a look at how we reduce the rate of growth and spending. nobody is talking about cutting government in total. reducing the rate of growth in
government so we stop adding all this burden of debt to our children and grandchildren. that's what the debt ceiling is b. how much are we going to allow the president to increase the debt burden on his children and grandchildren. he says he doesn't want to have that debate. any time we talk about that, it should be a serious debate. we've got it start coming to terms with that. >> i'm glad that you don't want to play brinksmanship. i guess my point is the raising of the debt ceiling beyond the money that we're at right now is for money that is already committed. so that is not actually more spending. >> no, it is not. it is not. it is to pay for additional deficit spending. which i, i agree with you, nobody says we can start balancing our budget immediately. but what republicans are saying is, if you're going to increase the debt burden on our children, at least start working with us to restrain the rate of growth in spending over the next few years so we can start bringing our budget into balance. so we don't totally mortgage our children's future. that's what this debate should be about.
>> you are right, it should be about that. we're going to discuss it later in the show. the idea about why we don't have budgets, how we can fix that. senator, thanks for the time to talk to us, we hope we can talk to you more in coming weeks. >> have a great day. >> senator johnson is a republican from wisconsin. he is on the senate budget committee. the fiscal cliff nan senonsense fiscal cliff and the exploding debt. how did we get here? >> we haven't had one in almost four years. >> i could end the deficit in five minutes. >> how? >> you pass a law that says that any time there's a deficit of more than 3% of gdp, all sitting members of congress are ineligible for re-election. >> i'm going to tell you what the problem is, why we don't have a budget and what you need to know about fixing it, when we come back.
uncle sam's biggest problem is in his wallet. it's been four years since your federal government had a real budget. there have been some political stunts to make it seem like budgets were failing in congress. bills put forward for an up or down vote. that's not how the system works, there's never been a budget passed like that. and there probably never will be. it's not how it's designed to work. christine romans is host of "your bottom line." set us straight if government were working properly, how would we actually get a budget done? >> it is a complex process and it starts with the president. by law, the commander-in-chief is the one who is required to submit a budget proposal to congress, before the first
monday in february. since the constitution grants the power of the purse to congress, final budget decisions are really up to it. let's talk about that. once the proposal gets to congress. budget committees in the house and the senate work with public officials an other congressional committees to decide on a budget president. and that's where it starts to get interesting. the budget president serves as a guide for all spending and revenue decisions for the year. at least that's how it's supposed to work in theory. none of this, ali, has happened since 2009. >> we're going to discuss why, christine, thanks very much. why don't we have a budget? gridlock. senate majority leader, harry reid, a democrat, says it was not worth trying to go through the process of passing the president's budget. that's why you hear that old republican saw that harry reid won't even present a budget to the senate. you may have also heard the often-repeated claim that president obama's budget was struck down in the house and the senate, getting zero votes. goose eggs from either party. but those bills were not the
budget. they were shell versions of the president's budget put forward by republicans, designed to fail. they were not budgets this he were just politics. republicans did put out their own budget plan in the form of paul ryan's path to prosperity. but bipartisan bickering resulted in no progress there, either. part of the reason our government has been able to survive without a budget is because of something called continuing resolutions. which are essentially an extension of the existing budget. so it is not true as many of you enjoyed tweeting me, that the u.s. doesn't have a budget. we just haven't had a new one in some years and that is a bad thing. it's also not true that obama's budget got no votes, because that wasn't obama's budget. the sad truth is that we do not have a budget in the united states, a new one and there are consequences for that, not the least of which are the dozen or so close calls with government shutdowns in the past few years. plus, those continuing resolutions, they're short-term. they avoid tackling long-term problems like federal debt and
the deficits. the uncertainty of that short-term thinking wreaks havoc on businesses and their investment and unemployment. look no further than the debt ceiling showdown in summer of 2011, that led to the budget control act which was a last-minute deal to raise the debt ceiling in exchange for automatic cuts that were to take place at the end of 2012. you know those, as the sequester, which i've said many times, is a stupid name for a stupid thing that only washington could come up with. big surprise, with those sequester cuts, by the way, washington gave themselves another extension, two more months, so march 1st, america has another cliff to worry about going over. these people are really worse than a fourth grade flunkie who why not write to your constituents sand say, sorry that dog ate my homework. the mangy dog has been the american political process. america's chief export seems to be economic uncertainty. incredibly that only seems to be getting worse, what's the
likelihood of this changing. >> when you have the mini cliffs ahead of us and seeing ugly politics in the next few weeks and months this might be capitulation, right? this might be this moment where you're going to see the system thrashing around, getting through this, and the optimist in see says after that you're going to have deficit reduction, you're going to have an eye to debts and deficits and a blueprint for what kind of country we're going to be, that's what a budget is, right? the budget is the blueprint for what your priorities are, what your vision is, for the american standard of living. the continuing budget resolutions are not a vision, they're nothing like a vision. i think that if you can get through this very tortured time over the next maybe three to six months, maybe after that. we'll start talking about what the vision is going to be for america again. >> i hope you're right, the last congress accomplished something america hasn't seen in 40 years, much ado about nothing. and later, "rolling stone's"
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richard quest is the host of "quest means business" on cnn international. before we start i want to show our viewers the timeline thaw sent us, you call these do-or-die moments in washington. in late 2010, democrats and republicans started to fight over extending the bush tax cuts for wealthy americans, ultimately, president obama signed an extension of the tax cuts for all taxpayers. now four months later, the president and congressional leaders cut a budget deal that cut $38 billion in federal spending for t year. that agreement, if you recall, came less than two hours before the government would have shut down. in august of the same year, the
white house and congress were in the same position, bumping up against the debt ceiling, the provision of the deal created the fiscal mess which we have still not solved. at congress closed out 2011 with the payroll tax cut and unemployment benefits, two days before christmas. yet another massive fight on relatively modest stop-gap measure that both sides had largely agreed on. of course i don't need to remind you about the fiscal cliff fight that we just got done with. congress could not come to an agreement even as massive spending cuts and tax hikes were scheduled to take effect. congress still hasn't had enough. now we have three more fights looming. the debt ceiling isn't raised by mid february or early march, the government won't be able to pay its bills, which would put the united states' credit rating at risk and damage the fragile economic recovery. while congress did resolve the tax portions of the fiscal cliff. they put off a decision of the sequester, the spending cuts and that fight will play out in march. finally, because the president and congress have not been able
to agree on a budget since april of 2009, the u.s. government is operating on the continuing budget resolutions, the current one expires at the end of march. will, you say this dysfunction is a symptom of an underlying problem that we are not talking about -- please explain to me what that underlying problem is. >> the schedule you just laid out has been extremely advantageous to you in this program, because it's giving everyone to talk about. you look at the congress, particularly sometimes you've focused in in on republicans as using leverage to get essentially the federal budget in order, to fight over what our priorities are in spending and taxes. and sometimes i think you're 100% right. i don't like seeing republicans use the debt ceiling in particular as a moment of leverage. but you're focusing on symptoms of the crisis, not the cause. the fact that for 44 months this congress has not passed a
budget, 44 months, almost four years, we have no idea what the priorities of this government are. >> as christine pointed out, the budget are the priorities of a government. i want to discuss how serious this might be. let me show you the poll from gallup. about the way the politics work in washington. three-quarters of americans say it's causing serious harm to the united states. but 52%, 52 are optimistic that the way politics works will improve in the next ten years. i think they think we're also going to domesticate unicorns. democrats control the senate and republicans control the house representatives, that stayed the same. why would anybody think this getting better? >> there's something known as the optimism bias, which is well known in social science, we all tend to be a little more optimistic than our real experience tells us. i love the optimism bias, that's what makes you believe you can write a book, if you can't write
the deadline. believe you can get up and face the day. thank god for the optimism bias, i think this is just a view, not social science backed. my personal belief as a non-american who loves america, is that americans particularly prone to the optimism bias, and that is great. having said that when it comes to these political battles, i think actually a do-nothing congress is not always a bad thing. not tackling things -- >> i agree -- >> it's not always bad. >> when i tweeted that information out, somebody said to me, the job of congress is not just to pass as many bills as they can. there may be something to the fact that we're not passing as many bills. >> right. exactly and right now i think these artificial crises, because they are man-made, these are not things that the world economy is forcing upon the united states, in contrast say with europe. i think the best thing for america, for anyone who runs a business, for anyone who wants a job, would be if the debt ceiling and the sequester, people just forgot about. for 12 months. >> this is an interesting point.
richard, i think we may be lying to people. about christine says it you say it a i say it. that businesses hate uncertainty. you know what all we've had is uncertainty and the stock market is at a five-year high. >> can you call this certainty. it's happening with such frequency that it can be certainty. >> it just the new normal? can we just forget about this and move on? >> they like certainty and markets will wobble if there's no certainty. but business gets on with doing business. they learned how to trade in the most unfavorable scenarios. look at the great recession, 2008, 2009. business knows what has to be done. it has to cut back when it has to spend more. all of those sort of things, when it has to shift production. when it shifts production to low-cost environments, so business, corporations and companies they know what happens to be done. >> the main point, ali, you talked about the fragile recovery and it is fragile.
but it is a recovery and i think that now that washington has gotten past the big tax debate. the best thing would be do no harm. it's a fragile recovery. let it get stronger, this is not the time for the grand budget bargain that some people are talking about. >> both of these people have pointed out things that i would agree with. essentially -- >> doebts be so surprised. >> business is resilient. business can operate in a worst-case environment. >> it has to. >> we wish it could operate in an optimal environment just because you pass more laws than a congress that may follow you, does not make you a better congress. and some of this fight, some of the crisis is natural. it's going to happen when you must make difficult decisions about your spending and taxing. natural consequences of a big, big choice. >> it's also a product of the system you've got and i'm with you on everything. love this country. lived here. but if the system you've got. >> an efficient parliamentary
system would be so much better to get things done. always. >> at least it does get things done. >> i think richard and i came to this agreement last week. certain things for which the american political system works better and certain things where the parliamentary system works better. >> the key is what you want to get done. >> right. >> the other issue is, will, is that the american system is well designed for a country which has an effective political consensus. the divided government, which is structurally there works when you have parties that are able to come to an agreement do deals. the reality right now is i think 9 nation is quite froiundamenta divided and certainly the elected representatives are very much divided. >> i'm the only american standing at this table. >> all right. so you're -- >> you're the odd man out. what the rest of the world cannot have is more of what you were just showing. month after month after month.
>> you guys did in europe, you must feel good about this when you come up here and say you guys are as disorganized as we are will is not going to shave the debt ceiling is raised. >> right. debt ceiling beard. richard stick around. you're not going to have timothy geithner to kick around any more. >> as a kid growing up in queens i had dreams of making a difference in the world. >> as jack lew gets to make a difference now, he's going to be the next treasury secretary of the united states. will he make a difference? richard and i go head to head for some q&a after this. one. but you're not alone. i knew you'd come. like i could stay away. you know i can't do this without you. you'll never have to. you're always there for me. shh! i'll get you a rental car. i could also use an umbrella. fall in love with progressive's claims service.
new term, new treasury secretary. president obama has nominated jacob jack lew to be his next treasury secretary. he's 57 years old. he's got the weirdest signature ever. which is soon going to appear on a dollar bill near you. lew has been the white house chief of staff. he's described as a budget wonk and a consummate washington insider. lew has done two stints as the head of the office of management and budget. you'll know that as the omb. under presidents obama and clinton. he was a key player during the 2011 debt ceiling talks that almost shut down the government. he'll have his work cut out for him. democrats and republicans on capitol hill are gearing up for
another battle over extending the debt ceiling while the global embarrassment that serves as the economic policy debate in washington these days, i've got a hunch that timothy geithner won't mistaking part in another one of those showdowns. but why should the rest of the world care if jack lew or anyone else is running the u.s. treasury? joining me now, he's taken off his jacket. he's got his suspenders, richard quest. a little q&a. i'll do the same thing. richard quest, host of "quest means business." on cnn international. does it matter who the u.s. treasury secretary is for the rest of the world? give me 60 seconds on your bell. generally i doubt most americans are all that concerned about the treasury secretary. but in 2008, who it was mattered a lot to the world. gooit timothy geithner was the right guy at the right time. because the global banking system was teetering on the edge of collapse. he knew the ins and outs of wall street, the commercial banks,
global credit and central banks. co-in obama's words, hit the ground running. jack lew is a budget wonk and his nomination will be mostly and american affair this time around. the u.s. has a budget problem, it's an internal problem. it may blow a hole in the american hull, but china is not going to start selling off the u.s. dollars because the government doesn't have a budget and might shut down. democrats and republicans can't agree on how to cut our bloated expenditures, but that's an internal washington. washington needs an inside man at treasury. jack lew is an inside man. so as long as the world doesn't implode. americans much less the world will pay little attention to who heads the u.s. treasury. >> what do you think? >> what do i think? it's really very simple. simple once again. it's not as easy as it's now a domestic issue with the budget battle. if only it were. this is all about who the man
is, and what does he bring to the table. if we look back at treasury secretaries, paul o'neill and john snow, they were major men in their own industry. nobody remembers them and they were not huge successes. lloyd benson. a great man in his field. but did not bring much to the table. now you look at paulson, geithner, summers, even morgan. they were men who were able to make the treasury work. there's no doubt that jack lew comes with the authority of the president and the white house. but he has to go further than that. he has to take the financial community, the g-8, the imf, the world bank, if he can't do that, then he is sunk. >> we will be watching this and talking about that lot. good to see you, brother. richard quest, the host of cnn international's "quest means
business." president obama gave big props to the man jack lew is replacing. >> when history books are written, timothy geithner will go down as one of our finest secretaries of the treasury. >> matt taibbi of "rolling stone" joins us after the break to tell us why he thinks the president is dead wrong on geithner, why he argues that the bailouts may have rescued wall street but didn't come anywhere near fixing the budget. officeyour business needs...k... at prices that keep you...out of the red. this week get a bonus $15 itunes gift card with any qualifying $75 ink purchase.
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reminder of the audacity and bullish attitude that still rules wall street. aig, the troubled insurance giant that was given a aig, remember that name? the troubled insurance giant that was given a $182 billion taxpayer bailout to stay afloat, this which can aig considered joining a shareholder lawsuit against taxpayers challenging the terms of the bailout which saved the company and possibly planet earth from financial meltdown. i know what you're thinking. how could they? well, outrage followed and aig said they wouldn't join the lawsuit after all but the company is holding off on giving us the reason why. to be fair, aig have publicly thanked for your help. >> we've repaid every dollar america lent to us. >> everything plus a profit of more than $22 billion. >> for the american people. >> thank you, america. >> helping people recover and rebuild. that's what we do. now, let's bring on tomorrow. >> government did turn a $22 billion profit on the deal, and i know aig has a responsibility to its shareholder, employees, and customers to be successful.
what does this episode say about the state of wall street in washington right now? matt taibi is a masterful writer with rolling stone, i think -- i like matt a lot. he's a little bit crazy but masterful at putting this argument forward. you start with mentioning that the funds were used in some ways for retention bonuses. this latest chapter doesn't help aig's reputation. you really say the government failed in changing the way wall street thinks. >> no, i think what the real lesson, my assignment was to look at the bailout, was it an accomplishment, was it not? what i think we focused on in the end was they told so many lies on behalf of these companies over the years. in the interest of instilling confidence in the markets, that in the end they ended up vouching for a system that was bankrupt or was insolvent. we're stuck vouching for that system now. that's the problem. where does that end? when you start lying for a
company, you end up having to keep doing it over and over again. you have to publicly endorse the health of these companies. that's the ongoing legacy of these bailouts. >> where does it end is an interesting theme of your story. in fact, i want to read a line from it on the first page. wouldn't have to get far into it. it said we thought we were just letting a friend crash at the house for a few days and ended up with a family of hillbillies who moved in forever, sleeping nine to a bed and building a meth lab on the front lawn. who are the hillbillies here and sleeping nine to a bed and who's got the meth lab? >> look at the hsbc settlement last month or the ubs settlement four years ago. could you have imagined we would let banks off for laundering $9 billion for terrorists and mexican drug cartels? the rationale they gave was similar to the rationale they gave for endorsing the solvency of banks that were insolvent. they said we have to do these because these are systematically important companies and we can't let something happen to them because if it happens to them,
we'll have another disruption. >> you said there might have been some hope in the way the bailout was originally structured. within days, it changed into something else and within days it changed into something else. it went from something that was going to help america through its banks into helping homeowners and banks into something that was just about banks. >> then it became something that what didn't even necessarily help banks. the original rationale is we're going to give a whole bunch of money to healthy, viable banks to help start to grease the economy and start lending all over again and stimulate business activity all over the country. what it turned into is we're going to fill capital holes for failing institutions and get no new lending stimulated and not going to create business and jobs. that's sort of the situation we ended up with. >> you look at the last 30-some-odd months where we have actually created jobs and the stock market which a lot of our
viewers invest in through 401(k)s is at a high. do you attribute any of that to the bailout? >> absolutely. i do. the question is will it continue. the proof is in the pudding. is the situation sustainable or not? it comes down to do you believe these too-big-to-fail banks are solvent? do you believe in their accounting and they're going to remain healthy or do you believe there's trouble with ahead? >> the way i teased you were coming on is that president obama really, really spent a lot of time talking about tim geithner and the applause he got in the white house was extended. you don't -- you think tim geithner and neil barofsky, the inspector general of t.a.r.p., you both think geithner's more part of the problem than the solution? >> i think, you know, i agree with barofskyon a lot of these
points. tim geithner's legacy, he's going to be remembered as the architect of too big to fail. he had the opportunity to go in and correct a lot of problems, restore fiscal honesty and transparency in the system and instead, they papered over the problem and threw a lot of money at corrupt failing institutions and they created these sort of monsters that now we have to publicly back even when they're laundering money for terrorists and drug dealers. >> you write an article like this, it gives you strange bedfellows and puts you into bed with a lot of conservatives who say we shouldn't have had the bailout? >> i believe it should have been done differently with conditions. it should have been done in a way that encouraged transparency instead of papering over problems. but i do believe this is an inherently conservative issue. i think there should be some linkage between liberals and conservatives because it's not a partisan issue at all. >> it's a good read. matt's article called "secrets and lies of the bailout." matt is a contributing editor with "rolling stone." coming up, this hi-tech jumbo jet was supposed to change the industry.
one week, five mechanical glitches and billions of dollars on the line for a major u.s. company. i'm talking about the boeing 787 dreamliner. boeing's latest and greatest hi-tech jet. monday, a japan airlines dreamliner filled with smoke after landing. tuesday, another had to be towed back to the gate in boston because of a fuel leak. dn